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My wife pays pre-tax dollars for a cancer policy each month. She received a $5000 payment as she was DX with breast cancer. Is this payment considered income?
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This is not an IRS publication but http://www.ask4benefits.com/cancer-insurance-policies-tax-deductible/
If the policy premiums were paid without any tax savings, then the proceeds are entirely tax free. However if the premiums were paid pretax or deducted on form 1040, then the proceeds may be taxable. Your insurance carrier may issue a form 1099 for any taxable proceeds paid during the previous tax year.
Taxation by Proceed CategoryThe proceeds may be taxable depending upon the type of policy feature triggering the claims payment.
- Lump sum indemnity proceeds may be considered taxable income. Proceeds derived from an initial diagnosis benefit, along with payments made based upon the number of days confined to a hospital due to cancer would be considered lump sum indemnity proceeds.
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